Debating the alternative to austerity in Spain and the UK

Contents of this longer than usual post

The Austerity Scam

Austerity is a scam, there is no need for it. We have made this point before: the idea that the national economy is like a household budget is mistaken. Governments and their central banks have the prerogative of creating money, or spending it into existence, and this means that there need not be a shortage. To be sure, flooding the economy with too much liquidity could produce other problems (inflation, worsening trade balance, increasing emissions) but these can be controlled by applying other macroeconomic levers, principally taxation (see Richard Murphy on the role of taxation: HERE and Frances Coppola on money creation and its consequences HERE).

It is unclear why all the three main parties persist with the economically illiterate pretence that running a deficit is a problem, and that cuts to public spending are necessary to achieve this. The historical record refutes this notion. It seems that the right are running an ultra-Thatcherite political campaign in economic dress, of rolling back the State, and particularly the Social or Welfare State. It is less clear why the centre left should also play along with this (as “austerity lite”, slower and less deep, but cuts nevertheless). In discussions with protagonists it seems that the main reason is fear of the press, but this represents a retreat from the responsibility of educating the voting public – how far we have descended from the times of Atlee and Bevan.

Having noted the mainstream consensus on fantasist economics, we will not go further into an analysis of party politics in the UK: this is not Steady State Manchester’s role. Instead we will turn to the question of what policies are needed to counter austerity. And here we return to “the paradox of Green Keynesianism. We will do this with the help of a piece written by Giorgos Kallis and colleagues in the Research and Degrowth collective at the Autonomous University of Barcelona.

Podemos

First some context. Podemos is a new political party in Spain that recent opinion polls have put ahead of Spain’s PSOE Labour equivalent and neck and neck with the governing right wing PP. It arose out of the protests against austerity by the Indignados movement of 15 May (Movimiento 15M). Podemos eschews the right-left label, but most of its support does come from left of centre part of the electorate. The Citizens’ Council of Podemos, its leadership, was elected electronically be over 100,000 people and it includes activists, academics and some former politicians. It is partly the communication skills of its leadership, notably of its effective leader Pablo Iglesias (even when on right-wing t.v. programmes), that explains appeal. But Podemos is also deeply rooted in the wider social movement, organised through circles of supporters in the various towns and city neighbourhoods. The policy formulation process is based on these circles. As such Podemos would seem to owe something to the inspiration of the so called “pink tide” of new Latin American democratic leftism (for example in Bolivia where the ruling MAS party was established explicitly as the political instrument of the social movements, although there has been something of a drift from that vision in power).

Returning to the economy, while Podemos rests on its circles, it has also commissioned input from some noteworthy intellectuals. Vicenç Navarro and Juan Torres López who are well known on the Spanish left as critics of neoliberal economics. Navarro was an advisor to Chilean President Salvador Allende’s Popular Unity government whose bloody suppression in the Pinochet coup of 1973 heralded the beginning of applied neoliberalism, while Torres has advised Venezuela’s late socialist President Hugo Chávez whose 1999 election marked the beginning of Latin America’s leftward turn.

Navarro and Torrres have put together a proposed programme. Its key strategic objectives are:

1) Guarantee sufficient funding at an acceptable cost for companies and families given that this is the life-blood of any economy and what the Spanish economy currently lacks.

2) Generate effective demand, that is, sufficient income for families, investors and government are able to spend resources that allow firms to create sufficient and decent employment.

3) Make the public debt sustainable, so it does not absorb more absolutely necessary resources as it does now, squeezing the economy with the excuse of paying back the debt, while actually increasing it (as bank interest) rather than reducing it.

4) Redeem those who have lost their income, their homes or other social, labour, civil and political rights, expanding such rights to all the population to reach a level of social security and protection that befits Spain’s level of economic wealth.

It will be noted that these are far more radical than anything on offer from the British Centre Left and in the main this is the kind of thing that anyone with an eye to social justice should be demanding and promoting here. But there is one small problem. This can be seen from the Keynesian thinking that underpins the authors’ previous 2011 ebook, “Hay Alternativas: Propuestas para crear empleo y bienestar social en España” (There are Alternatives: Proposals to create employment and well-being in Spain), on which they clearly draw for the Podemos strategy.

45. Establish well targeted economic plans that will stimulate the growth of new sustainable activity, generating of social prosperity, decent employment and equality and that are respectful of the environment.

50. An economic stimulus plan orientated to set in motion new activities and forms of production and consumption.

62. Model of growth orientated to the internal market based on high salaries and increased public spending.

Yes we can do away with growth

The Research and Degrowth Collective (Barcelona) presents in this article 10 proposals to obtain prosperity without economic growth.

These proposals are relevant for Podemos but also for other parties in Spain, Catalonia (ERC, ICV, CUP), and other territories such as Greece, Italy, France and Portugal [and the UK and its nations – MB]

In this newspaper eldiario.es there has been an interesting debate concerning whether Podemos [literally “We Can”, the new Spanish radical popular party that grew out of the anti-austerity protests – MB] can promote a political agenda of de-growth in its economic programme. De-growth is not the same thing as recession, but the hypothesis that we can achieve prosperity without economic growth. The acceptance that the society of growth could have arrived at its end, or that if not then it ought to, is converted into a potent argument in favour of redistribution, one of the key proposals made by Podemos. De-growth challenges the spirit of capitalism itself: expansion. But escape from growth is not an easy task. Almost no political party has attempted it so far.

Recently (in vocabulary.degrowth.org) we have collected concrete political proposals that can facilitate a transition to de-growth. In what follows we present 10 proposals that are relevant for Podemos, but also for other parties in Spain, Catalonia (ERC, ICV, CUP), and other territories such as Greece, Italy, France and Portugal [and the UK and its nations – MB]. The programme that follows does not pretend to be exhaustive since it does not include proposals on crucial issues (pensions, health and education, public banks and the ending of the evictions, [following mortgage default – particularly severe in Spain since people still have to repay the total debt after being made homeless] – MB etc.) that are already in the programmes of progressive parties like Podemos and that we support.

1) Abolish the use of GDP as indicator of economic progress. If GDP is a misleading indicator, we should stop using it and look for other indicators of prosperity. Monetary and fiscal national accounts statistics can be collected and used but economic policy shouldn’t be expressed in terms of GDP objectives. A debate needs to be started about the nature of well-being, focussing on what to measure rather than how to measure it.

2) Establish environmental limits. Establish absolute and diminishing caps on the total of CO2 that Spain can emit and the total quality of material resources that it uses, many of those imported from the global South. These caps would be in CO2, materials, water footprint and the surface area under cultivation that embedded in imported products. These measures already exist; they must become politically relevant and publicly promoted. Other similar limits should be established such as the extraction of water, the total built-up area and the number of licences for tourism services in zones dedicated to mas tourism.

3) Restructure and eliminate debt. An economy cannot be forced to grow to resolve accumulated debts that have contributed to fictitious growth in the past. It is essential not only to restructure but also to eliminate part of the debt with a people’s debt audit, part of a new, really democratic culture. Such elimination shouldn’t be realised at the expense of savers and those with modest pensions whether in Spain of elsewhere. Once the debt is reduced, the caps on carbon and resources will guarantee that this will not be used as an opportunity for more growth and consumption.

4) Reduce and share the work. Reduce the working week to 32 hours and develop programmes that support firms and organisations that want to facilitate job-sharing. This should be orchestrated such that the loss of salary only affects the 10% with the highest salaries. Complemented by environmental limits and the tax reform proposed below, it will be more difficult that this liberation of time can be used for material consumption.

5) Minimum and maximum income. Establish a minimum income for all for all Spain’s residents of between 400 and 600 Euros per month, paid without any requirement or stipulation. Design this policy in conjunction with others that increase the income of the poorer 50% of the population while decreasing that of the top 10%, to finance the change. The maximum income for any person – from work as well as from capital – shouldn’t be more than 30 times the basic income (12,000 – 18,000 Euros monthly).

6) Tax reform. Implement an accounting system to transform, over time, the tax system, from on based principally on work to one based on the use of energy and resources. Taxation on the lowest incomes could be reduced and compensated for with a carbon tax. Establish a 90% tax rate on the highest salaries (such rates were common in the USA in the 1950s). These taxes would be expected to halt consumption and eliminate the incentives for excessive earnings, which feed financial speculation. Also tackle capital wealth through inheritance tax and much higher taxation on property, for example on houses that are bigger than a reasonable size (for example more than 80 sq metres per each adult resident).

7) Optimise the use of buildings. Stop the construction of new houses, rehabilitating the existing housing stock and facilitating the full occupation of houses. In Spain those objective could be met through very high taxes on abandoned, empty and second houses, prioritising the social use of SAREB housing [those falling under the post-crash banking restructuring provisions following the Spanish real estate crisis], and if this is insufficient, the social expropriation of empty housing from private investors. By ‘social use’ we mean policies for the social rented sector, the co-operative economy and the common good.

8) Support the alternative society. Support, with subsidies, tax exemptions and legislation, the not-for-profit co-operative economic sector that includes alternative food networks, cooperatives and networks for basic health care, co-operatives covering shared housing, credit, teaching, and artists and other workers. Facilitate the de-commercialisation of spaces and activities such as mutual support groups, shared childcare and social centres.

9) Stop subsidising activities that are highly polluting, moving those subsidies towards clean production. Reduce to zero the public investment and subsidy for private transport infrastructure (such as new roads and airport expansion) military technology, fossil fuels and big mining projects. Use the funds saved to invest in the improvement of public rural and urban space, such as squares, traffic free pedestrian streets [paseos y ramblas], subsidise public transport and cycle hire schemes. Support the development of small scale decentralised renewable energy under local and democratic control, in stead of concentrated and extensive macro-structures under the control of private business.

10) Reduce advertising. Establish very restrictive criteria for allowing advertising in public spaces: prioritising just public information and reducing greatly any commercial character. Develop policies through taxes and committees to control the quantity and quality of advertising permitted in the communication media.

Last week Podemos published an economic programme prepared by Professors Navarro and Torres López [well established and respected mainstream left economists – MB]. Although the document has the strategic objective of stimulating demand and is neither concerned with nor favourable towards de-growth, many of the proposals such as the application of taxes to financial transactions [the “Tobin tax” – MB], redistributive taxation, the 35 hour day, a moratorium on large infrastructure developments or the turn towards clean investment and caring activities, are very close to the spirit of our own proposals. The programme also mentions the need to stimulate a more sustainable kind of consumption but it does not provide the tools needed to achieve this. Applying taxes on natural resources in place of work, restricting advertising, and establishing clear limits on the use of physical space, materials and CO2 are some of our proposals in this direction. The programme of Podemos also needs more definition and specifics on how it will support the co-operative economy. Nor need it abandon the idea of a universal citizen’s income, that concerns more directly the European policy of Podemos. It is positive that the authors of the report don’t use GDP and recognise that at least in the short term their proposals won’t result in an increase in GDP (we believe that this will also be difficult even over the longer term). If this is so, they need to also insist that GDP ceases to be a politically relevant indicator and specify what new indicators they will substitute to show the improvements that their policies will lead to.

We don’t mind if the right things are done in the name of de-growth or not. Indeed, we want to obtain good policies independently of their effects on growth. And in that way we can [podemos] do away with growth [decrecer]!

The Viable Economy and the Paradox of Green Keynesianism

Many of these ideas are close to those we have presented in The Viable Economy, although we emphasise the eco-regional level of Greater Manchester and the Mersey river basin. Many of our other ideas are also present in the Podemos document.

To conclude I will return to the question of what the British Ecological Economist Molly Scott-Cato (and newly elected MEP for the South West) has called the Paradox of Green Keynesianism. This is that by promoting the use of public money via ecologically benign investments such as housing insulation and renewable energy, to create jobs and create economic stimulus multipliers in the economy, the consequence is likely to be an expansion of the economy with a resulting increase in materials throughput, more resource extraction, mining, drilling, water abstraction and more pollution, greenhouse gases, nitrates, ocean acidification and so on. The only way to square the circle is, as Research and Degrowth say, through Establishing

“absolute and diminishing caps on the total of CO2 that Spain can emit and the total quality of material resources that it uses, many of those imported from the global South”.

“Action plans for the reduction of hydrocarbon fuel usage within a bioregional cap. The cap could be set on a shadow basis at first, becoming mandatory over say a five year period. This could be complemented by modelling of the impact of a cap and share scheme.”

This latter idea, developed by the Irish FEASTA group offers a way of linking a basic citizens income to both a redistributive fiscal strategy and to the absolute and diminishing resource cap to de-grow the brown economy. I am told, am not sure with how much authority, that the current Labour Party leader, Ed Miliband, when Secretary of State for Climate Change and Energy, seriously looked at the cap and share concept, but put it in the “too difficult” box. I wonder if he added “for now”.

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